An Update from the 8th Circuit
September 14, 2014
Some times, whistling Dixie might just be enough. In an opinion handed down last Friday, the Eighth Circuit Court of Appeals dealt a serious blow to companies faced with defending False Claims Act cases brought by current or former employees as whistleblowers.
In United States of America ex rel. Susan Thayer v. Planned Parenthood of the Heartland, the appellate court for Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota sided with the Department of Justice and a former manager of Planned Parenthood's Storm Lake, Iowa clinic in finding generalized FCA allegations sufficient to survive dismissal.
The case-specific significance of the decision is that it sets in motion what is sure to be an extensive and costly discovery process for Planned Parenthood. The greater import of the case, however, is its broad implication for companies---particularly those in the heavily-regulated healthcare industry---who find themselves defending FCA claims based on alleged false billing.
Based on this development in the case law, companies should reasonably anticipate two things: (1.) An increase in the number of whistleblower filings by former employees and (2.) an increased likelihood of extensive and costly discovery in the event of suit.
Prior to last Friday's decision, companies defending whistleblower actions in the Eighth Circuit took great comfort in knowing that FCA claims regarding billing practices were subjected to a higher level of scrutiny than almost all other civil claims. The Eighth Circuit had previously required whistleblowers, who alleged fraudulent billing practices as the basis of their FCA action to support their allegations with specific example(s) of fraudulent claims. The classic fact pattern routinely and successfully relied upon by companies obtaining dismissal of such actions was that found in the 2006 case of United States ex rel. Joshi v. St. Luke's Hospital, Inc., 441 F.3d 552 (8th Cir. 2006).
In Joshi, the whistleblower was an anesthesiologist who had practiced at St. Luke's Hospital from 1989 to 1996. In his qui tam action against the hospital, he alleged that the hospital had systematically violated the FCA over a sixteen-year period by seeking Medicare reimbursements at higher rates than those to which it was entitled and by submitting claims for services that were not performed and supplies that were not provided. Dr. Joshi, however, did not identify the details of any false claim in his complaint but instead alleged that every claim submitted was fraudulent. In concluding that the complaint failed to satisfy Rule 9(b), the appellate court held that Dr. Joshi's claim of fraudulent billing lacked sufficient indicia of reliability because, as an anesthesiologist rather than a member of the hospital's billing department, he failed to provide the factual basis for his knowledge concerning the alleged submission of fraudulent claims.
The Joshi court specifically held that when a whistleblower alleges that a defendant engaged in a systematic practice or scheme of submitting fraudulent claims, the complaint must provide some representative examples of the defendant's alleged fraudulent conduct, specifying the time, place, and content of the defendant's acts and the identity of the actors. As a result of Dr. Joshi's failure to include this critical information, the Court determined that the alleged fraud had not been pled with sufficient particularity and dismissed the action against St. Luke's.
In last Friday's decision, the Court significantly curtailed the protections of Joshi and its progeny. In the recent Thayer decision, the Court held that a whistleblower can satisfy the requirement of pleading fraud with particularity notwithstanding his or her failure to plead representative examples of false claims. Critical to the Court's decision was the fact that Ms. Thayer was able to plead personal, first-hand knowledge of Planned Parenthood's billing systems and practices. When coupled with her allegations of first-hand knowledge of Planned Parenthood's submission of false claims, the Court found excusable her failure to cite a definite example of a false claim or claims for payment.
Only time will tell the true impact of the Thayer decision. But, this author predicts that companies who routinely submit claims for payment to the Government will now have an increased likelihood of being hauled into federal court by disgruntled former employees. Arguably, the representative example requirement had a deterrent effect on FCA filings by former employees. Without access to company billing information, former employees oftentimes lacked critical information for a FCA complaint. Now, however, it is enough for the former employees to simply establish personal, first-hand knowledge of billing systems and practices (which will usually be accomplished by virtue of pleading their former position and job duties) and to globally describe the alleged billing scheme; the discovery process will fill in the details.
To view the opinion, please visit: http://media.ca8.uscourts.gov/opndir/14/08/131654P.pdf
About the Author:
Jane Duke is a former United States Attorney for the Eastern District of Arkansas. She currently represents healthcare providers in a broad range of subject matter, including defending against qui tam actions brought under the False Claims Act, 31 U.S.C. § 3729 - 3733.
 In pertinent part, Federal Rule of Civil Procedure 9(b) dictates, alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.
 The Joshi court articulated this as a requirement that the complaint identify the who, what, where, when, and how of the alleged fraud. 441 F.3d at 556.